Purpose

The purpose of the ISCL is to encourage the comparative study of law and legal systems and to seek affiliation with individuals and organisations with complimentary aims. We were established in June 2008 and are recognised by the International Academy of Comparative Law.

Thursday, July 5, 2012

The Good-Faith Purchaser: Markets, Culture, and the Legal System

Abstract:
A key legal institution is the set of rules balancing theft with markets as alternative means to transfer property rights. Even if all legal systems forbid theft, different societies provide different ex post solutions to the conflict arising between the original owner and the good-faith buyer of a stolen good. These rules range from the full protection of the original owner's property right to the full protection of the buyer's reliance on contract. In situations in which only intermediaries can transfer goods by using either theft or markets, society should condone transfers occurred through theft when innocent buyers value the good more than original owners and reverse them otherwise. We show that, in the first case, provided that the difference between the owner's and the buyer's valuation is not too wide, there are separating equilibria in which moral intermediaries --- i.e., those for whom theft entails a sufficiently high moral cost --- signal their proper title by charging higher prices. In the second case, the market shrinks since moral intermediaries refrain from stealing. In the most likely case, in which buyers tend to value the good more than original owners, the extent of protection of the owner increases (decreases) with the share of moral intermediaries (the quality of the legal system) because of the lower probability of theft (lower impact of public enforcement). Instrumental variables estimates based on a cross section of 77 jurisdictions are consistent with this prediction.